Discussions on raising taxes are heating up following the April 13 general election. This is hardly surprising, considering that the opposition parties, which had advocated increasing corporate taxes in the run-up to the election, secured a majority in the legislature.
But a report released Monday by the state-funded Korea Institute of Public Finance draws attention in that it ― contrary to the opposition's assertion ― raised the need to increase individual income tax and value-added tax (VAT) rather than corporate taxes.
According to the report, the ratio of income tax revenue to Korea's GDP remained at 3.7 percent, less than half of the OECD average of 8.6 percent. That's primarily because nearly half of the country's 16 million wage earners don't pay a penny in taxes.
The proportion of VAT revenues to GDP stood at 4.1 percent, falling far short of the OECD average of 6.8 percent. That's because the country's VAT rate has been stuck at 10 percent for decades, compared with the OECD average of 19.2 percent.
By contrast, the corporate tax-to-GDP ratio averaged 3.51 percent between 2010 and 2013, far above the OECD average of 2.92 percent.
All this means is that it would be better to increase income tax and VAT to raise money for expanded welfare.
But things are not that simple. Foremost is that few would readily support the argument of raising the income tax and VAT at a time when the nation's 30 largest conglomerates sit on cash reserves amounting to more than 700 trillion won. Raising the VAT rate, in particular, needs to be approached carefully because the tax, which is applicable regardless of income or wealth, usually overburdens low-income households and worsens the already widening income polarization.
Also, one needs to keep in mind that the greater portion of corporate tax revenue has largely resulted from the shrinkage of income transfers to households from corporate profits over the last 20 years.
What is certain is that taxation should proceed in ways that would make more companies and citizens pay taxes, and large high-income companies and rich families should bear the greater burden.
The fundamental problem concerning tax hikes, however, is that public opinion is overwhelmingly against raising taxes. A Korea Gallup survey, commissioned by the Ministry of Strategy and Finance last month, found that nearly 70 percent of respondents opposed the expansion of welfare through tax hikes.
Given the reality that it's impossible to expand welfare without raising taxes, political parties first need to build a consensus in the upcoming National Assembly on whether or not to raise taxes.
But a report released Monday by the state-funded Korea Institute of Public Finance draws attention in that it ― contrary to the opposition's assertion ― raised the need to increase individual income tax and value-added tax (VAT) rather than corporate taxes.
According to the report, the ratio of income tax revenue to Korea's GDP remained at 3.7 percent, less than half of the OECD average of 8.6 percent. That's primarily because nearly half of the country's 16 million wage earners don't pay a penny in taxes.
The proportion of VAT revenues to GDP stood at 4.1 percent, falling far short of the OECD average of 6.8 percent. That's because the country's VAT rate has been stuck at 10 percent for decades, compared with the OECD average of 19.2 percent.
By contrast, the corporate tax-to-GDP ratio averaged 3.51 percent between 2010 and 2013, far above the OECD average of 2.92 percent.
All this means is that it would be better to increase income tax and VAT to raise money for expanded welfare.
But things are not that simple. Foremost is that few would readily support the argument of raising the income tax and VAT at a time when the nation's 30 largest conglomerates sit on cash reserves amounting to more than 700 trillion won. Raising the VAT rate, in particular, needs to be approached carefully because the tax, which is applicable regardless of income or wealth, usually overburdens low-income households and worsens the already widening income polarization.
Also, one needs to keep in mind that the greater portion of corporate tax revenue has largely resulted from the shrinkage of income transfers to households from corporate profits over the last 20 years.
What is certain is that taxation should proceed in ways that would make more companies and citizens pay taxes, and large high-income companies and rich families should bear the greater burden.
The fundamental problem concerning tax hikes, however, is that public opinion is overwhelmingly against raising taxes. A Korea Gallup survey, commissioned by the Ministry of Strategy and Finance last month, found that nearly 70 percent of respondents opposed the expansion of welfare through tax hikes.
Given the reality that it's impossible to expand welfare without raising taxes, political parties first need to build a consensus in the upcoming National Assembly on whether or not to raise taxes.
![[GOING ELECTRIC] The complex decision to buy an electric scooter in Korea](https://img.koreatimes.co.kr/upload/thumbnailV2/d8d6ba5551db4b03a4b66028de81485e.jpg/dims/resize/178/optimize)
![[INTERVIEW] Female leadership not just diversity issue, but survival necessity](https://img.koreatimes.co.kr/upload/thumbnailV2/611c91682e4b473780243e06e9555410.jpg/dims/resize/178/optimize)
![[ANALYSIS] Why is N. Korea not allowed to launch spy satellites?](https://img.koreatimes.co.kr/upload/thumbnailV2/cc538720ced042fab4c58f91064a6b5c.jpg/dims/resize/178/optimize)
